Kress Cycle

Clif Droke

"Despite resisting the urge to raise prices in recent years in order to prevent a consumer backlash, midsize retailer and restaurant chains are starting to raise prices to consumers. According to a quarterly survey by Barlow Research Associates, 53 percent of companies with annual sales of $10 million to $500 million have lifted prices during the last 12 months, as reported in the Sept. 4 issue of Businesweek. In other words, more price increases are on the way for the consumer despite a weakened economy.

Many economists at the Fed also have a narrow view of inflation, which they believe can be healthy for the economy under the assumption that it encourages people to spend and invest rather than sitting on their cash. There's a reverse side to this coin, however, that economists don't seem to recognize. It's the fact that continuous price increases like the ones we've seen in the last few years can inhibit spending and investment as consumers recoil from paying out too much of their disposable income on necessary items like food and fuel."

"Although the Fed tries to fight the long-term cycles through its monetary policies it cannot ultimately prevail in reversing the deflation the long-term cycles will eventually bring. The closer we head to 2014, that fateful year when the dominant 40-year and 60-year components of the 120-year cycle will bottom, the more we'll see of deflation's terrifying appearance.

Consumers will continue to see high retail prices for the balance of 2011 and into the first half of 2012 but by the second half of 2012 the effects of the deflationary long-term cycle should be in evidence. The good news is that this coming deflation will be salutary for the economy and will cleanse it of the problem of high prices that has plagued consumers for years."